Targa Resources Corp.TRGPNYSE

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 26% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Sell

Fair Value: $96.54 per share(market-calibrated)

-60.4%

Upside to Fair Value

Current

$244.04

Pure Model

$47.37

Fair Value

$96.54

Bull Case

$50.12

Bear Case

$43.97

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor TRGP

↓

CapEx normalizing toward maintenance

Historical CapEx is 12.28% of revenue (heavy investment phase). Model fades this to 5.50% by Year 10, freeing up ~$831M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 13.41% — below the sector mature average of 20.11%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.6B (13.41% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 31.38% in Year 1 to -21.98% by Year 5 (per analyst consensus). That's below the 2.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $244.04. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 58.67% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.85

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.34%

Cost of Debt

Pre-tax Cost of Debt3.60%

Tax Rate21.30%

After-tax Cost of Debt2.84%

Equity Weight (E/V)75.06%

Debt Weight (D/V)24.94%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (75.06% × 8.34%) + (24.94% × 2.84%)

= 6.97%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$22.5B	$21.9B	$18.4B	$13.4B	$12.3B
EBIT	$3.0B	$2.9B	$2.5B	$1.8B	$1.6B
Tax	$643M	$625M	$527M	$382M	$350M
NOPAT	$2.4B	$2.3B	$1.9B	$1.4B	$1.3B
+ Depreciation	$1.6B	$1.6B	$1.3B	$974M	$893M
- Capex	$2.8B	$2.4B	$1.7B	$1.0B	$674M
- Δ NWC	$538M	-$293M	-$519M	-$189M	$24M
Free Cash Flow	$713M	$1.8B	$2.1B	$1.5B	$1.5B
Discount Factor	0.935	0.817	0.714	0.624	0.510
Present Value	$666M	$1.5B	$1.5B	$959M	$759M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.5B

Terminal Growth Rate2.00%

WACC6.97%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$30.6B

PV of Terminal Value$15.6B

Exit Multiple Method

Year 10 EBITDA$2.5B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$35.5B

PV of Terminal Value$18.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$10.6B

PV of Terminal Value$15.6B

Enterprise Value$26.2B

(-) Net Debt$17.3B

Equity Value$8.9B

Shares Outstanding215M

Price per Share$41.51

Exit Multiple Method

PV of Projected FCFs$10.6B

PV of Terminal Value$18.1B

Enterprise Value$28.7B

(-) Net Debt$17.3B

Equity Value$11.4B

Shares Outstanding215M

Price per Share$53.24

Pure Model Fair Value

$47.37

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
4.97%	$79.29	$87.43	$98.30	$113.59	$134.17
5.97%	$57.18	$61.81	$67.61	$75.07	$85.06
6.97%	$41.00	$43.90	$47.37	$51.63	$56.95
7.97%	$28.39	$30.31	$32.56	$35.22	$38.42
8.97%	$18.13	$19.47	$21.01	$22.78	$24.85

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$43.97

-82.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.07

Base Case

$47.37

-80.6% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.85

Bull Case

$50.12

-79.5% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.73

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Energy Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth31.38%

Year 3 Revenue Growth-11.80%

Year 5 Revenue Growth-21.98%

Year 7 Revenue Growth-12.39%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin13.41%

Terminal EBIT Margin20.11%

Tax Rate21.30%

Historical Capex / Rev12.28%

Terminal Capex / Rev5.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 14x EV/EBITDA (Energy sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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